OFAC & Check Clearing Requirements

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Question:

These questions are regarding compliance with OFAC requirements: (a) Are banks required to check for payee of checks drawn on them and received by them for payment across the counter or through clearing? (b) Are banks required to check for the name of the drawer of checks sent by them for clearing? (c) In case of banks which provide cash letter service to their correspondents abroad, are they required to check for both drawer and payee? If required, how do banks manage this as automated checking of this information would not be possible in most cases.

Answer:

This was addressed in OFAC's recently issued Frequently Asked Questions (FAQ). All transactions, including the ones listed here, are subject to OFAC restrictions. However, OFAC does not mandate a process for checking any transaction just don't mess up and process one. So ultimately it becomes an institution risk decision. What is the risk that you will process a prohibited transaction in this way, vs. what will the cost be to provide some type of check against the OFAC list for these transactions. At least until the technology moves forward several more iterations, most institutions are finding that the cost of checking the payees of all checks they process would far outweigh the associated risk. However, a process to check payees on such things as Cashiers checks purchased at your institution, etc., may be more cost effectively controlled.

First published on BankersOnline.com 10/7/02